The Government’s Decision to “vary” (read: reject) the CRTC’s Decision followed a “perfect storm” of regulatory and policy developments in the Federal telecom sector over the preceding 18 months. In 2007, the then Minister of Industry announced the terms of the Advanced Wireless Services (AWS) auction, which set aside spectrum exclusively for new entrants. In 2008 Globalive won thirty licences for which it paid the Government $442 million. After a full ownership review of Globalive’s financial and ownership arrangements with the Egyptian telecom carrier Orascom, the Government concluded that Globalive was Canadian-owned and controlled and it issued spectrum licences to the company in March of 2009.

But this was only one stop along the road. The CRTC also enjoys independent jurisdiction to conduct ownership reviews under section 16 of the Telecommunications Act. Historically, the CRTC has conducted reviews of new entrant operators, including wireless carries such as Globalive, in camera and on a relatively informal basis. However, that changed when the CRTC issued a new framework for assessing ownership compliance in July of 2009. The new framework is far more rigorous, with four types of procedures to address compliance, the most intensive (Type 4) being a full written public process and oral hearing. The CRTC established a Type 4 review for Globalive.

Following its Globalive review, the CRTC rocked the industry when it reversed Industry Canada’s previous ruling. While both Industry Canada and the CRTC agreed that Globalive had met the “legal” test of ownership, the CRTC decided that Orascom nevertheless exercised control "in fact" over Globalive. The CRTC’s concerns were fourfold: corporate governance, shareholder rights, commercial arrangements with Orascom and Orascom’s economic interest in Globalive.

Clearly the Industry Canada and CRTC processes are not in comity, given that both authorities rely on the identical statutory test in assessing ownership compliance. The Government Order-in-Council to vary the CRTC Decision emphasized that its ruling was limited “to the facts in this case” and that it was “not removing, reducing, bending or creating an exception to Canadian ownership and control requirements in the telecommunications and broadcasting industries.”
The reference to the broadcasting industry is interesting, given that the ownership requirements in issue were limited to the eligibility of facilities based telecommunications common carriers to operate in Canada-perhaps a tacit acknowledgment that one cannot unscramble the omelette of ownership rules for companies such as Rogers who are involved in broadcasting distribution as well as telecommunications services using the same coaxial facilities.

Many have suggested that the Government’s decision to overrule the CRTC is the effective “nullification” of the current regime. At the very least, the fact that the Government vacated the CRTC’s Decision suggests that short term industrial policy goals have overridden the specific balance that has been previously struck under the ownership rules, one that encourages non-Canadian capital inflows while at the same time preserving de facto operational control in the hands of Canadians. In hindsight, the willingness of the Minister of Industry to bless Globalive's ownership structure (and to subsequently use his discretionary review power to vacate the CRTC’s Decision last week) even in the face of the significant control levers exercised by Orascom should clearly have been seen as a sign that the Government has decided that the benefits outweigh the costs in this case.

Is this the end of the foreign ownership rules as we know them? Perhaps not. In the flurry of comments on this issue declaring that the current regime is dead, three key factors have been lost in all the noise.

First, let’s remember the circumstances at play in this particular case. Globalive had clearly relied on the previous favourable ownership ruling from Industry Canada that it was in compliance with the rules. Globalive had paid the Government nearly half a billion dollars in spectrum fees and had over the last eighteen months incurred significant costs in hiring employees and making capital and other investments in anticipation of entering the market.

Second, in reality the “control in fact” test has never been a bright line test. It is a subjective assessment and is capable of spitting out opposite rulings in very similar fact situations. In fact, the wording of the December 11th Order-in-Council relies on this very flexibility to conclude that the issue was simply a difference of interpretation of the rules, rather than a repudiation of the rules.

Finally, the fact that the rules are under great scrutiny should not be a surprise to anyone. The Government has been sitting on two key public policy reports issued in the last three years. Both the Report of the Telecommunications Policy Review Panel and the Competition Policy Review Panel have recommended significant changes to the current telecommunications ownership rules. The Government has had months and even years to study these recommendations. The recent controversy over Globalive may cause the Government to re-read these reports to see if they propose a better balance between the sometimes competing objectives of Canadian control and capital formation in this key sector.

Perhaps we have finally arrived at a new world in the telecom sector. On the other hand, “Plus ca change….”….etc.

Many of us think of Google merely as your friendly, neighbourhood search engine. But Google is more than just a home page. Questions are increasingly being raised about Google’s dominance in several areas including on-line advertising, privacy and, more recently, copyright (read: “Google Books”). Google is now coming out swinging even on telecommunications policy matters, having appeared at the CRTC’s recent hearing on ISP Internet tariff management practices (ITMPs). Konrad von Finckenstein, the Chairman of the CRTC, was pleased that Google “as one of the large players on the Internet”, was actively participating in the process. In asking “Is Google good for Canada?”, the Financial Post noted that “the message was clear: in any national conversation about the state of the Internet in Canada, Google is now a necessary participant.”.

Before the CRTC, Google raised some familiar arguments on “net neutrality”. It cited the 2008 finding by the FCC that Comcast, the largest U.S. cable company and a major broadband service provider, had improperly “managed” traffic through application-specific throttling of BitTorrent, an open source peer-to-peer (P2P) networking protocol. The FCC ruled that Comcast’s actions were “discriminatory and arbitrary” and in violation of FCC policy and had effectively denied subscribers access to content.

Google advocates “innovation without permission [which] requires a robust, open Internet”. Google also claims that its view was “echoed” by consumer groups, Internet policy advocates, content producers and distributors. Google’s objective is to further “the power of an open Internet to share insights, test arguments, and facilitate meaningful civic engagement — all in cool, unexpected ways”. Google opposes application-specific measures to target bandwidth-heavy P2P applications. These ITMPs effectively transfer the permission to the carrier to determine which applications are suitable.

Of course, much of this rhetoric ignores the fact that the Canadian legislative and regulatory telecommunications framework is significantly distinct from that of the U.S. Canadian telecommunications legislation, as far back as the 1906 federal Railway Act which prohibited discrimination by “persons authorized to construct or operate a telegraph or telephone system or line”. The 1993 Telecommunications Act extends such prohibition to ISPs such as Rogers or Bell. The Act also prohibits a common carrier from controlling the content or influencing the meaning or purpose of traffic that it carries for the public. This statutory foundation does not exist in the U.S. context, leaving the FCC to address Comcast’s ITMPs on an ad hoc basis.

The Canadian ISP community argued that existing statutory general prohibitions are adequate to address each case on its facts and that imposing new net neutrality rules would unnecessarily restrict the scope for engineering and business judgment of each ISP in a dynamic competitive marketplace.

Google’s arguments before the CRTC must be seen alongside other pressing public policy issues. Privacy advocates are concerned about “Deep Packet Inspection” (DPI), which enables an ISP to target specific applications for “traffic throttling” purposes. The Canadian Privacy Commissioner has recently been seized with a complaint related to DPI in Canada. In the U.S., the FTC, Congress and the FCC are beginning to raise questions about the impact on privacy of practices such as DPI.

The current ITMP debate should be seen as one skirmish in the ongoing “clash of the titans” between Google and Facebook over the issue of “innovation by permission”: Google has accused Facebook as acting as a giant “walled garden”, similar to the way AOL acted in the 1990s (before itself was punished by evolving technology) and is urging legislators and regulators to ensure that Facebook adheres to the principle of “openness and transparency”. This debate brings into stark relief the potentially competing interests of network management and privacy: the Privacy Commissioner is concerned that Facebook is “not closed enough” from a privacy perspective! For a very interesting discussion with Fred Vogelstein (contributing editor of Wired magazine) about the competing interests of privacy and "openness" when thinking about Google vs. Facebook, check out a recent podcast of CBC's The Current.

Jonathan Zittrain also asks “are we in danger of too much openness?”. Zittrain is concerned that Google’s dogged pursuit of “openness” with applications such as its new operating system, Chrome, moves us further away from running code and storing our information on our own PCs toward doing everything online — in “the cloud”. Zittrain identifies the “most difficult challenge — both to grasp and to solve — of the [Internet] cloud is its effect on our freedom to innovate.”

All of this suggests that the potential for “undue preference” is in the “eye of the beholder”: it can occur at both the network level (Google’s concern for ISP ITMPs) and at the “application” level (as per Zittrain, freedom is at risk in the cloud, where the potential for gate keeping by Google and others arise “in ways that Bill Gates never dreamed of”).

To bring some order from all of this chaos, it would be arguably good public policy to formulate a list of anticipated unduly preferential circumstances in all platforms and in all contexts. The CRTC has previously shown that it is willing to put its mind to this question in earlier structural debates.

We certainly haven't seen the last of Google before the CRTC